Property Rights in Transition
Property Rights in Transition
• Politically: autocratic presidential systems
• High concentration of wealth at the top
– Ruling elite
– Oligarchs
• Often redistribution between favoured and no
longer favoured members of the elite
– e.g. with transition from Jelzin to Putin regime
Property Rights in Transition
• Wealth distribution - through privatization or
redistribution among elite - lacks perceived
legitimacy
• General problem of top-down, “politically”
created property rights as opposed to
“earned” property rights:
– they create the expectation that it is more
beneficial to invest into political sway rather than
work (Kay, 2007)
Cooley/Sharman, Central Asian Survey 2015
Legacy Issues
• Post-socialist countries have higher levels of
corruption
Svensson, JEP 2005
How Illegality Can Be an Equilibrium
• Hoff/Stiglitz (2004): If enough people benefit
from asset stripping as opposed to long-term
investment, there is no demand for property
rights protection.
– Predicting greater resistance in resource rich
countries
– Possibly true in the early stages of reform, as
losers realize their situation, this should reverse
(see Rodrick, AER)
How Illegality Can Be an Equilibrium
• Demand for legal strategies depends on
– effectiveness of government institutions
– beliefs that others will employ legal strategies
• For highly effective and ineffective
government institutions, unique EQ
• For intermediate level, tipping-point in the
share of firms pursuing legal strategy (GansMorse, APSR 2017)
Why Not Better Property Rights
Protection?
• Olson: Would not the winners from
privatization want to secure their gain by
strengthening property rights?
– oligarchs could try to impose constraint on the
autocrat
– autocrat could try to legitimize wealth grab
• Question of what drives the demand for
property rights protection?
Answer 1: Olson is Actually Happening
• The longer the tenure of the autocrat, the
better the property and contract rights
(Clague, Keefer, Knack, Olson, 1996)
– trust in stability increases in tenure
– endogeneity problem: Is an autocrat more longlived if he has a stable support base?
– succession problem: in relatively stable system,
succession may be well-orchestrated by the ruling
elite (with some hinges, Uzbekistan)
AUTDUR: Time spent
in office by
individual autocrat
TERMDUR: Total
time eventually
spent
in office by
individual autocrat
Answer 2: The Triumph of Feudalism
• President and oligarchs benefit from exchange
of economic favour for political support
• Recall: Even an inefficient system may be
stable if there is no credible alternative that
makes all the main players better off
A New Feudalism?
Autocrat
Oligarch A
Citizen
1
Citizen
2
Oligarch B
Citizen
3
Relationship Oligarchs – Citizens
• In corrupt system, more powerful oligarchs
can expropriate citizens (or less powerful
oligarchs)
• Glaeser, Scheinkman, Shleifer (2005)
• System supports greater inequality
Relationship Autocrat – Oligarchs
• Why the rich prefer weak dictators (Guriev/Sonin,
2009) or weak protection of property rights (Sonin,
2003)
Stability of the Autocrat– Oligarch
Relation
• Autocrat exchanges economic favours (“property
rights”) for political support
• Problems:
• Legitimacy problem
• Creating expectation that investment in political
lobbying pays off (Kay, 2007)
• Stability of the system requires overcoming the
credibility problem of the autocrat to reward his or
her followers (Myerson, 2008)
Institutional Variation: Kyrgyzstan
President A
Citizen
1
Citizen
2
Oligarch B
Citizen
3
Parliamentarian
system
Institutional Variation: Kyrgyzstan
• History of uneasy democratic rule with swings
towards authoritarianism and street
protests/civil strife as checks on power
• Three presidents since independence
• Which is more effective checks on powe?
– Property rights?
– or countervailing action in street/parliament?
Excursion: Political Turnover and
Property Rights
• Polishchuk/Syunyaev (2015): Assume an
incumbent group can choose property rights
regime which binds (how) a successor group
• Prediction: The greater the turnover, the
greater the desire to protect property rights,
the greater actual protection of property
rights
Excursion: Political Turnover and
Property Rights
• Polishchuk/Syunyaev find in a large sample of
non democratic states, that a measure of
turnover is correlated with better protection.
• At odds with Clague et al (1996) and no good
predictions for CIS:
• Property rights protection: Kaz > Rus > Kyrg
• Turnover: Kyrg > Rus > Kaz.
– In the case of Russia, turnover of regime directly
resulted in attack on PR’s of previous group
How legal protection permeates
citizen-oligarch relations
• How protection of property rights of oligarchs
(landed gentry) from autocrat (king) extends
to protection of property rights of citizens
– Black Act (Acemoglu/Robinson, chpt 11)
• Constitutional guarantees are for all or for no
one!
– from experience – can it also be shown?
– Weingast (1997), constitutional rules as red lines
for coordinating resistance
Appendix: Details of the
supporting stories
Corruption and property rights
• Glaeser/Scheinkman/Shleifer 2005
• some appealing features
– the powerful are in a position to expropriate
– the victim can sue
– courts have a propensity to “do the right thing”
but may succumb to pressure
– the powerful can exercise more pressure
– note: in GSS, corruption only supports the
underlying power relations
Illegal versus Legal Strategies
• Gans-Morse (2017)
– dominant strategy range
– intermediate range
• i uses legal strategy
• i uses illegal strategy
– l share of firms pursuing legal strategy
– a effectiveness of state
– g demand side barrier
– b effectiveness of illegal strategy
– both firms use the same strategy: each wins with
probability of 1/2
– legal against illegal: legal firm gets pay off from
winning legal with prob q and illegal firm gets pay
off from winning illegal with prob 1 – q
The (informal) story of the Black Act
• In the time after the Glorious Revolution, the
new landed (Whig) elite issued the “Black Act”
to deter poachers
• But court proceedings under the new elite
recognized rights of the defendant
• The new elite choose not to violate the rule of
law which they had brought in to protect
themselves from arbitrary rule